4 Changes In Stamp Duty That Will Affect Your Stock, Mutual Fund Purchases

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1. Uniform stamp duty across India

1. Uniform stamp duty across India

Earlier, stamp duties varied between states. The central government has now imposed stamp duty of 0.005 percent on all transactions carried out by mutual funds, systematic investment plans, and daily stock traders, with effect from 1 July 2020, irrespective of state.

The Finance Ministry said that in order to build a pan-India securities market, the Indian Stamp Act, 1899 and Rules have been amended to create a legal and institutional mechanism that will enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one Instrument.

“A mechanism for appropriately sharing the stamp duty with relevant State Governments has also been developed which is based on the state of domicile of the buyer,” the ministry’s statement said.

The notification clarifies that stamp duty will be payable to the state in which the client and specifically the buyer in a transaction is located.

Mutual funds, being delivery-based transactions in securities, were supposed to have been paying the duty as per various State Acts. All mutual fund transactions are thus liable for stamp duty and the new system has standardized the charges across states and the manner of collection of stamp duty.

2. No multiple incidence of tax

2. No multiple incidence of tax

In order to prevent multiple incidences of taxation, no stamp duty shall be collected by the States on any secondary record of transaction associated with a transaction on which the depository/stock exchange has been authorised to collect the stamp duty.

Further, in the new system stamp duty will be levied only on one side (payable either by the buyer or by the seller but not by both, except in case of a certain instrument of exchange where the stamp duty shall be borne by both parties in equal proportion).

For all exchange-based secondary market transactions in securities, Stock Exchanges shall collect the stamp duty.

Tax arbitrage is avoided by providing the same rate of stamp duty for issue or re-issue or sale or transfer of securities happening outside stock exchanges and depositories.

3. Stamp duty on off-market transactions

3. Stamp duty on off-market transactions

Earlier, stamp duties varied between states. The central government has imposed stamp duty of 0.005 percent on all transactions carried out by mutual funds, systematic investment plans, and daily stock traders, with effect from 1 July 2020.

The Finance Ministry said that in order to build a pan-India securities market, the Indian Stamp Act, 1899 and Rules have been amended to create a legal and institutional mechanism that will enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one Instrument.

“A mechanism for appropriately sharing the stamp duty with relevant State Governments has also been developed which is based on the state of domicile of the buyer,” the ministry’s statement said.

The notification clarifies that stamp duty will be payable to the state in which the client and specifically the buyer in a transaction is located.

Mutual funds, being delivery-based transactions in securities, were supposed to have been paying the duty as per various State Acts. All mutual fund transactions are thus liable for stamp duty and the new system has only standardized the charges across states and the manner of collection of stamp duty.

4. Segment-wise stamp duty

4. Segment-wise stamp duty

Earlier, stamp duties varied between states. The central government has imposed stamp duty of 0.005 percent on all transactions carried out by mutual funds, systematic investment plans, and daily stock traders, with effect from 1 July 2020.

The Finance Ministry said that in order to build a pan-India securities market, the Indian Stamp Act, 1899 and Rules have been amended to create a legal and institutional mechanism that will enable states to collect stamp duty on securities market instruments at one place by one agency (through Stock Exchange or Clearing Corporation authorized by it or by the Depository) on one Instrument.

“A mechanism for appropriately sharing the stamp duty with relevant State Governments has also been developed which is based on the state of domicile of the buyer,” the ministry’s statement said.

The notification clarifies that stamp duty will be payable to the state in which the client and specifically the buyer in a transaction is located.

Mutual funds, being delivery-based transactions in securities, were supposed to have been paying the duty as per various State Acts. All mutual fund transactions are thus liable for stamp duty and the new system has only standardized the charges across states and the manner of collection of stamp duty.



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